Coinbase is road-testing a new line as it ramps up its legal fight against the Securities and Exchange Commission. It goes something like this: If you think our business is illegal, you could have said so earlier. Instead, you gave us the go-ahead to be a public company just two years ago. What’s up with that?
The argument is appealing and easy to understand and is getting some traction in the media. The Wall Street Journal devoted a whole story on Friday to Coinbase’s “novel defense,” providing the company an opportunity to amplify its point that the SEC’s recent crusade is unfair.
Unfortunately for Coinbase, if you’re putting forth a “novel” argument in response to a potential lawsuit, that’s not a position you want to be in. Novel arguments are great when it comes to law journal articles or as part of an activist group’s long-term legal strategy. But you don’t want to be relying on them in a court of law—it typically means you have a weak hand.
As compelling as Coinbase’s argument might be as a matter of fairness, it may not hold up in court. As several lawyers told the Journal, the SEC’s IPO vetting process is focused on how well the company has disclosed the risks of its business model to investors—not the legality of the business itself. Bloomberg’s Matt Levine, a former securities lawyer himself, is sympathetic to Coinbase but makes the same point.
“Technically the SEC never gave any official approval of Coinbase’s business model, and technically ‘you let us get...
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